Right now, you could be making a big investing mistake.
If you’re ignoring the BAT companies – Baidu, Alibaba and Tencent Group – simply because they’re based in China… you’re missing out on big gains.
You see, BAT and FAANG (Facebook, Apple, Amazon, Netflix and Google) together are some of the world’s largest tech companies.
Facebook (Exchange: New York; ticker: FB), Apple (Exchange: New York; ticker: AAPL), Amazon (Exchange: New York; ticker: AMZN), Netflix (Exchange: New York; ticker: NFLX) and Google/Alphabet (Exchange: New York; ticker: GOOGL) have a combined market capitalisation of US$3 trillion. That’s larger than the GDP of the United Kingdom – the world’s fifth largest economy.
And over the past five years, FAANG stocks have delivered remarkable investment results. On average, their share prices have gained 238 percent.
That was five times more than the gains in the S&P 500 Index (45.6 percent) over the same period.
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The BAT companies haven’t done as well – yet
By comparison, BAT stocks have only gained 91 percent on average over the past five years. That’s almost a 60 percent underperformance for the three largest Chinese tech stocks.
But this year is different.
Since the start of 2019, FAANG stocks have gained an average of 17.6 percent.
BAT stocks, on the other hand, have gained an average 15.6 percent.
So BAT stocks are now delivering a performance roughly at par with FAANG.
But I think they’re about to go higher…
BAT stocks have room for growth
The BAT companies are making a huge impact on the day-to-day lives of the average Chinese consumer – in ways their U.S. counterparts could only dream of.
For example, as the owner of China’s largest social media platform, WeChat, Tencent Group (Exchange: Hong Kong; ticker: 0700) has over 900 million users (three times the population of the U.S.) that use its services for everything from sending messages to friends and transferring money in just seconds.
When it comes to e-commerce, not even Amazon can compete with Alibaba (Exchange: New York; ticker: BABA), which holds the title for the world’s biggest single day online shopping event.
In 2017 alone, US$547 billion worth of products were sold on Alibaba’s e-commerce (i.e. online shopping) platforms. That’s more than twice the US$200 billion sold through Amazon in the same year.
Singles’ Day, popularised by Alibaba in 2012 as a day for single people to get good deals shopping online, generated US$30.8 billion in sales on November 11, 2018.
That’s twice the online sales generated during Black Friday and Cyber Monday (the two biggest online shopping events in the U.S.) combined.
Baidu (Exchange: New York; ticker: BIDU), China’s dominant internet search engine, has over 148 million daily mobile users on its search app, which generate enormous amounts of data. And it faces little competition in China, especially for its maps services, which are used by almost all drivers.
Baidu is capitalising on the data that its users generate to become one of the leading players in artificial intelligence (AI) in China, where it has already installed an AI-enabled voice assistant software called DuerOS in over 150 million devices.
It helps that BAT stocks are supported by the Chinese government.
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They face little competition and are not restricted when it comes to collecting and using customer data in any way they see fit. This makes BAT stocks a unique investment opportunity in the world’s fastest-growing market for internet services.
BAT stocks also often have broader reaches into the Chinese internet economy than their U.S. counterparts, giving them enormous scope for growth.
For example, Alibaba isn’t just China’s dominant e-commerce company. It also owns the second largest cashless payment service in China, AliPay (with over 700 million users).
Its services are now being rolled out all over Asia, enabling Chinese tourists to travel without needing to bring paper money out of China – something that Beijing wants to curb.
Tencent, meanwhile, is becoming as much as an investment company as it is a social media and gaming company. Apart from owning WeChat, it also owns stakes in more than 700 other technology companies – 122 of which are valued at over US$1 billion.
Baidu isn’t a one-trick pony either. It’s not just a search engine that generates tons of online advertising revenues. It also owns China’s leading video streaming platform, iQiyi (Exchange: New York; ticker: IQ), which is considered by many as China’s Netflix.
With 87.4 million subscribers as of end-2018, iQiyi is fast closing in on Netflix, which had a global user base of 148 million in the same period. And iQiyi is growing its number of subscribers three times as fast (72 percent) as its U.S. counterpart.
So if you don’t have BAT stocks in your portfolio, you could miss out on big future gains.
Editor, Stansberry Pacific Research